AHDB Pork UK Pig Meat Market Update

BPEX UK Pig Meat Market Update - December 2013

UK Prices

GB finished pig prices in October averaged a record 171.87p per kg. Prices in the latest month increased steadily, as is often the case during this time of the year. Pig prices in October recorded a month-on-month change of almost 2p and were around 14p above 2012 levels for the same month. The rise came despite falling EU prices and stable supplies. This indicated firm demand for UK pigs continued, as has been the case for most of the year. In early November, pig prices began to edge down and in the week ended 23 November, the EU spec DAPP stood at 171.35p per kg.

The weaner market followed a similar trend to finished pig prices in October. The monthly average price for a 30kg weaner was only marginally up on the previous month at £54.26 per head. This was £13 higher compared with the same period in 2012. In the past, weaner prices have normally started to pick up from early October but this year the market remained somewhat balanced. In the early weeks of November, weaner prices recorded a sharp rise and reached £57.18 per head for the week ended 23 November 2013. However, the large increase is probably partly due to a change in how prices are collected, although increasing prices are normal at this time of year. BPEX has also introduced a new 7kg weaner price which will be published weekly and which stood at £43.22 in the latest week.

EU Prices

Having reached a peak in early September, EU pig prices began to fall back as the month progressed. The EU average reference price for October fell by nearly €11 to €180.45 per 100kg. It continued to fall thereafter, reaching €170.65 per 100kg for the week ended 24 November. This was almost €25 lower compared with the peak two months ago and was around €9 below its level a year earlier. Prices have been below year earlier levels since mid-September, the first sustained period when that has been the case in three years. Declining prices in the EU reflect a combination of some easing of the supply situation and subdued consumer demand in the EU, with reports of some worsening of the export situation.

Prices have generally fallen across all member states with the exception of Ireland, where prices increased by just over €10 in the 10 week period to the 17 November, although much of that ground was lost with a fall in the latest week. The largest recent decline was recorded in Poland, where pig prices fell by €14 (down 8%) in the month to 17 November. During the same four week period, pig prices in the Netherlands and Germany decreased by 7% and 6% respectively. Price reductions in other major member states varied between 3% and 5%. Given the recent stability in UK prices, the gap between the UK and EU prices has widened and in the latest week the difference reached €29 per 100 kg.

UK Slaughterings and Pig Meat Supplies

According to the latest figures, UK clean pig slaughterings in October totalled just over 1 million head. This was less than 1% up on the same month in 2012. However, the year to date total showed that UK pig supplies remained somewhat tight, with only a very marginal rise for the January to October period this year. Following the historical trend, October recorded the highest weekly kill so far this year. The number of sows and boars culled in October was down by 12% on the year to 2012. Last year, cullings were inflated in response to the high feed prices at the time.

For the first time in history, carcase weights topped 80kg in October. The latest monthly average weight reached 80.28kg. This was over a kilo heavier compared with the same month in 2012. Carcase weights have generally remained above last year’s level for most of this year as a result of lower feed costs and producers looking to offset tight pig supplies. As a result of increased throughputs and higher carcase weights, pig meat production in October reached 84,900 tonnes. This was 1,600 tonnes (2%) above the previous year’s level. At this level, pig meat production was the highest recorded for October since 1999.

UK pork exports continued their strong performance in September, 9% above 2012 levels. At 17,200 tonnes, this was the highest monthly figure since 2000. The ongoing tight supply situation elsewhere in the EU continued to create opportunities for UK exporters. Ireland overtook Germany as the leading destination. Denmark also received significantly more pork, with September shipments around 4 times 2011 levels. While China imported 60% more UK pork than last September, volumes to Hong Kong fell by almost as much. Sausage, bacon and processed pig meat exports all rose on the year. Offal exports continued their recent year-on-year decline, despite increasing shipments to both China and Hong Kong, due to continued weakness in European offal demand.

The UK imported 200 tonnes less pork this September compared with a year earlier, a smaller decline than seen over the last few months. Most major suppliers increased shipments to the UK, other than Denmark and Ireland who both reduced shipments following lower production. Germany was again the principal source. Imports of cured pig meat increased, with Denmark strengthening its position as the UK’s prime supplier and imports from the Netherlands continued to slowly decline. Sausage imports were marginally down on last year and imports of processed pig meat fell on the back of fewer Irish imports.

Feed Market

The UK feed wheat Nov-13 futures price closed at £163.50/t on Wednesday 20 November, a £2 decrease on the closing price a month earlier. The Chicago maize Dec-13 futures price settled $10.63 lower over the month at $164.17/t, slightly up on the close on 18 November which, at $162.2/t was the lowest closing price since July 2010.

Global grain markets remain on a downward trend as US farmers wrap up the record maize harvest. According to the USDA, the US maize harvest was 91% complete, as at 17 November, 5 points ahead of the five-year average.

Early indications look good for the 2014 US wheat harvest. This suggests that wheat prices, which have been less influenced by maize than in recent seasons, could generally stay on a downward trend but there is still a very long way to go. 63% of the US winter wheat crop for 2014 was in good/ excellent condition as at 17 November. This is a vast improvement on a year ago (34%). Favourable rains have been supportive of the establishment of winter wheat this autumn. In contrast, autumn 2012 presented very dry conditions which set the crop back.

As reported previously, the lowest UK wheat crop in over 10 years means that considerable substitution from wheat to other grains is expected in feed rations, depending on price and nutritional constraints. The latest data published by Defra for the first quarter of the 2013/14 season (Jul-Sep) confirms some substitution. As expected, given the price differential to wheat, GB feed compounders used more barley this year, compared to the same period in 2012. However, technical limitations in pig/poultry diets means that exports and stocks will be important in balancing the largest barley crop in 15 years.

AHDB/HGCA’s Early Bird Survey of farmers’ planting intentions shows a sharp rise in the total area of wheat and winter barley for harvest 2014 compared to last year. The total wheat area (including spring wheat) is estimated to increase by 22% to 1.98Mha, at the UK level. The winter barley area is projected to increase by 55% to 484Kha, compared with 2013, and is the highest UK winter barley area seen in a decade.

The UK has been a net importer of wheat since the 2012/13 season so the return to a typical area is the first step to the UK returning to the export market in 2014, although yields and quality remain weather dependent. This implies that UK wheat would have to remain competitive globally, suggesting a potential downward trend in feed wheat prices. However, there is still some time to go and prices will be highly dependent on the global situation, amongst other price drivers such as quality.

The Dec-13 Chicago soyameal futures price closed at $448.64/t on Wednesday 20 November, a decline on $458.23/t, a month before. In the UK, the Hi pro soyameal (Ex-store, East Coast) price for November delivery was £375/t as at 14 November, down from the nearby price of £405 reported as at 11 October.

The US soyabean harvest is nearing completion and was 95% complete as at 17 November, close to the five-year average. Despite the delayed start, soyabean planting in Argentina is back on track with 22% of the projected area sown as at 14 November, similar to the same time last year. Argentina is the world’s top soyameal exporter and so is a price driver globally.

With the US harvest nearing completion and South American plantings reported to be going well, the global soyabean market will most likely be driven by demand, unless anything radical happens to South American weather. Lower global prices might be supportive of China buying a lot of soyabeans this season. Chinese traders estimate that the country will import 63-68.5Mt of soyabeans this year, a record amount. The Chinese government has been buying home-grown soyabeans for state reserves, which has led to higher domestic prices compared to world market price, making imports attractive.

The latest US export sales data show that US soyabean exports have been strong so far this season, with total commitments now at 34.1Mt (86% of the total season export forecast). 21.8Mt of the total commitments were to China. The strong demand for US soyabeans means that the South American crop will be closely monitored.

According to AHDB provisional estimates, the cost of pig production increased slightly in November with the latest estimate putting the full production cost at 147.3p per kg. This was around 3p higher than the estimate for October but was more than 14p down from November 2012. Lower costs can be attributed to lower feed prices in recent months but a slight increase in recent weeks has led to higher overall costs. The latest cost of production figure is 26p down on the peak recorded in January.

With rising costs and stronger pig prices the gap between the two has narrowed slightly in November. However, producers are still making positive net margins. In the latest month, the producer was estimated to receive around £19 more per pig sold than they paid out during the month. However, recent positive margins have not yet come close to offsetting the losses accumulated over the years when costs were above their returns.

Consumption

In the 12 weeks to 13 October, consumer spending on pork increased 3% compared with last year. Volume sales dipped 2% over the same period, with fewer shoppers buying pork. Pork chops and steaks, which account for almost 40% of sales, recorded a 2% fall in purchases. British pork has outperformed the market, however, with volumes up 7% and expenditure increasing 13%, with more shoppers buying British more frequently.

In the latest four weeks, pork made strong volume purchase and spending gains of 10%. Gains have been due to the performance of leg and shoulder joints, in particular, as a result of increased promotions at the major retailers.

A 6% reduction in purchases of bacon meant the value of sales dipped 1% in the 12-week period. All cuts recorded declines, with rashers down 5%. Spending on sausages increased again, driven by a 17% rise in the average price paid. Volume sales have continued to fall, although premium sausages are still performing well. Low fat sausages, although a much smaller share of the market, have also shown strong growth. After a strong summer, volume growth for sliced cooked ham has slowed to 1%, with spending up 3%.